Comment: It is somewhat baffling that the media and reports such as the one in this article fail to discuss the economic consequences of the UK going from net exporter of oil and gas until about 2005, to near total importer of oil and gas by 2020. This is going to cost the UK tens of billions of pounds each year, which it currently does not have to pay, will see the UK Treasury lose a lot of income from taxes, and surely will impact severely on the 300,000 people or so directly or indirectly employed in the industry? My impression is that the closer you get to Aberdeen, Scotland, 'oil capital of Europe', the less people want to know.

Article: An influential forecast group is worried about the risks individuals, firms and ministers are taking with amounts borrowed.

Ernst & Young's Item Club spring forecast said people are "overly relaxed about risk" and are "spending as if it was going out of fashion".

Club chief economic adviser Peter Spencer said: "The bottom line is that we are all living beyond our means."

"Ultimately we are all skating - not to say wobbling - on thin ice," he added.

The report highlights the current deficit in the public sector and expresses surprise that it built up at a time of economic strength and buoyant tax revenues.

"If the Chancellor is forced to borrow so much when the economy's so sweet, what will happen when it turns sour?" Mr Spencer asked.

The Item club also says that the business sector is driving economic growth faster than either government or consumer spending.

It points out that business investment at the end of last year was 13.5% higher than it had been a year before.

Article: A leading economics think-tank today warned that the economy is "skating on thin ice" because of excessive household debt.

The respected Ernst & Young ITEM Club, which uses the same economic model as the Treasury, said the economy was running "at full tilt", thanks to the booming business sector, particularly services. But although Gordon Brown appears to be leaving No 11 on a high, the strong economic performance is built on shaky foundations. It said the current benign macroeconomic environment had made both individuals and firms overly relaxed about risk, inflating asset values and transactions and boosting borrowing and spending.

"Many people are following the Chancellor's lead and are borrowing to finance consumption," said Peter Spencer, the ITEM Club's chief economic adviser.

"The UK's current deficit has reached 3.5 per cent of GDP which suggests that as a country we are close to the edge. Ultimately, we are all skating - not to say wobbling - on thin ice. There's a danger that we are slithering into complacency."

Britain's consumer debt mountain has topped Â£1.3 trillion, raising fears that thousands of households will be left with debts they cannot afford to repay if interest rates are jacked up. Shock figures last week showing inflation had jumped to a 10-year high of 3.1 per cent, prompted some analysts to predict that rates might have to rise from their current 5.25 per cent to 6 per cent.

Professor Spencer, however, believes that one more hike, to 5.5 per cent in May, will be sufficient to bring inflation back to its 2 per cent target.

The report also highlights the huge black hole that has opened up in the public finances, despite the strength of the economy and buoyant tax revenues. Mr Brown upped his borrowing forecasts yet again in last month's Budget, and is now expecting the Treasury's coffers will be in the red to the tune of Â£34bn in the 2007-8 financial year.

Professor Spencer said: "The bottom line is that we are all living beyond our means. In the short-term, Mr Brown has resorted to borrowing for consumption. If the Chancellor is forced to borrow so much when the economy's so sweet, what will happen when it turns sour?"

Despite the grim warnings, the ITEM Club predicts the economy will expand by a healthy 2.9 per cent this year, in line with the Chancellor's 2.75 to 3.25 per cent forecast. Growth is expected to slow slightly to 2.7 per cent in 2008.

Comment: The numbers for natural gas do not add up in this article. If "The share of gas in the fuels balance is to decrease from 68% to 50%", while the demand for electricity more than doubles from 153GW now to 340-392Gw in 2020, that still means that the total amount of natural gas used will rise substantially, much higher than the quantities consumed now. FC Novosti has often reported over the last few months that the aim is to use more coal and uranium to reduce the amount of gas used, so that there is enough to meet other domestic demand and exports.

Article: The Russian government has considered and approved a master plan for building power generation facilities until 2020, drafted by the Ministry for Industry and Energy and Russia's RAO UES energy holding.

Russia's demand for electricity may reach around 340,000-392,000 MW by 2020, as compared to today's production level of 153,000 MW. Investment in the construction of new power plants of all types has been estimated at $542 bln. The share of gas in the fuels balance is to decrease from 68% to 50%, while that of coal to grow from 25% to 46%...

Article: Vagit Alekperov, CEO of Russia's largest private oil company LUKoil, said about the West Qurna 2 project in Iraq in an interview with The Financial Times on Tuesday: "The Russian government supports us, the foreign ministry supports us, the president of the federation supports us."

He added that LUKoil would be able to develop the West Qurna field two to three times more quickly than any other company.

"We are ready to move really fast," he said. "The situation in South Iraq is pretty stable and we have no problem starting operations right after the passage of the hydrocarbon law and once we have the necessary approvals," he said. Iraq's parliament aims to pass the law by the end of next month.

The consortium led by LUKoil (68.5%) and including Russian companies Zarubezhneft (3.25%) and Mashinoimport (3.25%) signed a PSA with the Iraqi Oil and Gas Ministry (25%) in March 1997 to develop the West Qurna-2 field. It is effective until 2020. The field's proven recoverable reserves amount to around 6 bln barrels of oil.

Comment: This was in the letters page of The Independent, from a resident of Brisbane, Australia. Water now, petrol next?

Letter: Sir: Current water shortages in Australia are affecting many facets of ordinary people's lives ("A global warning from the dust bowl of Australia", 20 April). My wife and I emigrated from England to Brisbane in August 2003. We bought a large detached house on a block of land a third of an acre in size - not unusual in the neighbourhood. The lawns were soft and emerald green, as well they would be given the electronic irrigation system which pumped water on to them while we slept. And we were not alone. The suburb was a sea of green. People were free to water when and as much as they liked.

The once-green lawns are now brown, and the soil baked as hard as concrete. Our neighbours' lawn has a large crack in it, big enough they tell me for their children's feet to fit into. Recently introduced water restrictions in Queensland have all but banned outdoor water use and the focus has now shifted to indoor use. We are being encouraged to use no more than 140 litres of water per person, per day. Households using more than 800 litres per day will be required to explain their usage.

I was concerned to see from a recent rates notice that my wife and I were using too much water. In order to comply with the target we have radically altered our way of life. We are still using approximately 194 litres of water each per day. This, despite taking four-minute showers (the bath is but a dusty relic of our former lives), having the taps on low, turning them off while we wash, not using the dishwasher, not watering the garden etc etc. Next month a plumber is coming to fit more efficient shower heads. I doubt there is much more we can do, but I now feel guilty about using any water at all.

Plans are in place to try to safeguard the water supply - including building an expensive desalination plant - but they may not be implemented in time. The unthinkable may happen - we will run out of water altogether. That prospect is rarely discussed publicly. I wonder whether it is because people cannot face up to that happening.

Comment: OGJ. Link will work to non-subscribers for about one week. We had warnings thro' out last year of future problems with LNG supplies, shortages from now to 2010, shortages 2010 -2015, shortages after 20105, you name it. Here is the latest. It is probably worth pointing out that post-2010, both the USA and UK, two of the world's largest consumers of natural gas, will be increasingly looking to LNG to replace falling production from their respective domestic reserves.

Article: Speakers on the first day of the 15th Conference & Exhibition on LNG in Barcelona warned attendees that the ability of their industry to supply LNG was in serious question.

Petronas Pres. and Chief Executive Officer Mohamed Hassan Marican, while noting in his morning keynote the tremendous growth of LNG in recent years, nonetheless called attention to the lack of production capacity coming on stream in the last 12 months. And many projects have seen delays. Maricam's comments came in the main keynote of the day.

Frank Harris, head of global LNG consulting at Wood Mackenzie Ltd., Edinburgh, echoed Marican's concerns in an afternoon session on globalization. The world's LNG industry is fixated on expanding natural gas supply, he said, and for good reason.

Marican predicted an LNG supply crunch by 2010 caused by rising costs and a cap on LNG supply growth. In only recent years, capital expenditures for an LNG supply project were about $200/tonne of export capacity. Today, he said, that figure has risen closer to $1,000/tonne. Projects have seen costs escalate by from 25%-100%.

... WoodMac's Harris said the balance between LNG production and demand will remain very tight through 2010, as existing capacity and capacity under construction barely keep up with forecast demand.

From 2011, supply Harris classified as "probable" must come on line; so-called "possible" demand beyond that must be ready after 2012, he said.

Delays to both categories are likely, however, caused by cost pressures and public resistance in the form of political and environmental hurdles.

Longer term, industry's greatest hurdle will be gaining access to gas reserves to feed new liquefaction projects, said Harris. Despite the large amount of known but undeveloped gas, development of many reserves for export must compete with domestic demand growth and distance obstacles: Pipeline capacity is nearby or fields are prohibitively far from seas and oceans, LNG's transport media...

Comment: OGJ. Link will work to non-subscribers for about one week. UKOOA (UK Offshore Operators' Association) was one source of rosy forecasts for oil and gas production from offshore UK. With UK offshore oil and gas production falling, heading close to zero by 2020, UKOOA has had to re-invent itself.

"It will lobby the government for a sustainable UK offshore industry" – what's sustainable about depletion?

To strengthen the long term health of the UK offshore oil and gas industry by working co-operatively across industry, with government, regulators and all other stakeholders.

Article: The UK Offshore Operators' Association (UKOOA) has dissolved and has been replaced by a new bodyâ€”Oil & Gas UKâ€”having a wider range of interests and members outside of UK operators.

Oil & Gas UK was launched in Aberdeen Apr. 23. It will lobby the government for a sustainable UK offshore industry by combining the voices of all involved playersâ€”from supermajors and large contractor businesses to small independents and those working in the supply chain. The oil and gas services industry has increased in economic importance as many operators struggle to secure rigs and equipment to develop their projects and service unavailability could jeopardize future UK North Sea production.

Jointly chairing Oil & Gas UK will be Dave Blackwood, BP PLC's North Sea business head, and Tom Smith, Nessco Ltd.'s managing director. The organization's chief executive will be Malcolm Webb, who held that role at UKOOA.

Blackwood said, "The combined perspective of operators, nonoperators, and contractors will give our activities greater depth and a more coherent voice for the industry, particularly in its conversations with the government."

Oil & Gas UK will meet with Secretary of State of Trade & Industry Alistair Darling, other government representatives from the UK and Scotland, and the trade unions to discuss issues of concern.

The new body will tackle issues such as production, exploration, health and safety, employment practices, policy advisory, skills and training, environment, economic and fiscal concerns, gas, and supply chain management.

Oil & Gas UK will operate from Aberdeen, London, and Brussels to develop and deliver policies across industry to secure the long-term health of the business, Webb added.

Comment: A UK business man puts his money where his mouth is, making electrical trucks and minibuses.

Article: Jamie Borwick is either brave or reckless. He has sunk the entire Â£14m he made from selling a family stake in Manganese Bronze, the manufacturer of the iconic London black taxi, into a green vehicles company. In Coventry. Where factories typically close rather than open. And all this at 52, when many business figures are winding down, not gearing up.

But Mr Borwick has a vision of his electric trucks and minibuses trundling quietly and cleanly around big cities, delivering goods and people. Not just in the UK, but all over the world.

... "Now everybody wants to be green," says Mr Borwick. "Big companies want to show to their customers that they care about their environment. The Modec allows them to have a Â£25,000 'billboard' to show that they're really, really green." Tesco has ordered 15 Modecs to try out as vehicles for delivering groceries to the homes of customers who shop online. Two other supermarkets are negotiating orders. A gaggle of public authorities wants to evaluate the vehicles...

Comment: As item 2b indicates, some foreign companies are happy to move into Iraq now. A prime target under the current circumstances, one would have thought.

Article: Iraq could hold almost twice as much oil in its reserves as had been thought, according to the most comprehensive independent study of its resources since the US-led invasion in 2003.

The potential presence of a further 100bn barrels in the western desert highlights the opportunity for Iraq to be one of the world's biggest oil suppliers, and its attractions for international oil companies – if the conflict in the country can be resolved.

If confirmed, it would raise Iraq from the world's third largest source of oil reserves with 116bn barrels to second place, behind Saudi Arabia and overtaking Iran.

The study from IHS, a consultancy, also estimates that Iraq's production could be increased from its current rate of less than 2m barrels a day to 4m b/d within five years, if international investment begins to flow.

... Of Iraq's 78 oilfields identified as commercial by the government, only 27 are currently producing. A further 25 are not yet developed but close to production, and 26 are not yet developed and far from production...

Letter: Sir, Your prominent report (front page, April 19), which began "Iraq could hold almost twice as much oil in its reserves as had been thought", should have been given some sort of a health warning.

Most readers don't know that IHS, the consultancy that conducted the study into Iraq's resources, owns CERA, the consultancy that has been giving optimistic forecasts of the world's oil reserves.

It forecast in 2002 that gas production in the US would increase by 15 per cent by 2010 and it has since declined by 4 per cent - most gas wells there deplete in 12 months now. Nor do most readers know that the clients of IHS are the very same people who would like to get their rigs on to Iraqi soil.

The use of language such as "oil production" is inaccurate when referring to non-renewable resources. Oil is extracted, not produced.

Advanced extraction methods such as "horizontal drilling" do not increase "production" - they merely speed up depletion and ensure that when it approaches it is sudden, and not gradual as with conventional drilling.

If in any doubt, witness what is happening with Cantarell in Mexico: the world's second most prolific oil field is declining by 20 per cent annually. Nevertheless, CERA believes Mexico's oil extraction will remain level until 2015.

The fact is that the media are being massaged by a steady drip of "good news" on the energy front. Each drop - the hydrogen economy, clean coal and, more recently, ethanol - serves merely to confuse us and to distract us from the big picture. Alfred Nassim

Comment: Last Saturday an Austrian oil company was the latest to sign a deal with the Iranians to develop the South Pars gas field. The EU is not bothered, apparently, the USA is. As usual with agreements signed between Iran and international oil companies (IOCs), the agreement was only preliminary > The list of non-committal agreements between IOCs and Iran is getting long.

Article: The United States said Monday it would try to discourage a major Austrian oil company from following through on a proposed deal to help develop an Iranian gas field, noting the venture could draw US sanctions.

Austria's OMV, the biggest oil and gas group in Central Europe, announced Saturday that it had signed a memorandum of understanding with Iran to jointly develop parts of the South Pars gas field, one of the largest in the world.

It will also set up a liquefaction facility for the Iran Liquefied Natural Gas project and conclude further supply agreements for LNG from Iran.

State Department spokesman Sean McCormack said US officials would try to dissuade the Austrians from going ahead with the deal at a time when the international community is locked in a dispute with Iran over its suspected nuclear weapons program.

... At the same time the United States discourages firms from reaching even preliminary investment agreements with Iran, McCormack said.

"We question whether or not this is the right time to be handing the Iranians those kind of -- at the very least, public relations -- victories," he said.

Comment: This item was reported previously, but this version contains more info. Note the amount of money spent on geological surveying – it is not as though they cannot find oil because they are not looking:" Budget allotments for geological surveying in East Siberia were $77 million in 2005-06. Total budget spending on geological prospecting in 2006 was $635 million, and will be $730 million in 2007."

Article: Russian government official said on Tuesday, April 10, that construction of the second leg of Asia-bound Pacific oil pipeline could be delayed by three-four years from its original March 2008 deadline due shortages in oil supply from underdeveloped East Siberian fields.

"Failure to meet mineral base targets may delay the construction of the second phase of the pipeline by three or four years at best," Sergei Fedorov, head of geological and mineral resources department in the Natural Resources Ministry, told a Russian energy forum in St. Petersburg.

The first $11-billion leg of the pipeline came on stream last April and is expected to link Taishet near the East Siberian city of Irkutsk to Skovorodino in Russia's Far East.

... A decision to launch the construction of the second leg, with a projected capacity of 50 million metric tons (366.5 million barrels), depends on filling the first leg, which has a projected capacity of 30 million metric tons (220 million barrels) by the second half of 2008, and on the development of East Siberia's oil fields, Fedorov said.

Sergei Grigoryev, vice president of Russia's state-owned pipeline monopoly Transneft, said the starting date for the construction of the second leg could not be postponed because it had never been set.

... Fedorov said that the Natural Resources Ministry would draft proposals to increase budget funding for geological prospecting in East Siberia by late May. He called for additional budget allocations of $38.5 million annually for parametric drilling as part of geological surveying. "A new impetus is needed to fill the pipeline," he said.

Budget allotments for geological surveying in East Siberia were $77 million in 2005-06. Total budget spending on geological prospecting in 2006 was $635 million, and will be $730 million in 2007.

Russia expects to take 6-6.5 percent of the Asian crude market once the East Siberia-Pacific pipeline comes on stream.

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